Time may be running out for Stephen Wolf's dream of turning US Airways into a major global airline.
Nearly four years after Wolf came in as CEO to rescue the financially troubled company with a pledge to grow the airline, things are not going well.
Almost anywhere you look, US Airways has problems:
Unless agreement is reached on a new contract with the International Association of Machinists by 12:01 a.m. Sunday, the airline faces a potentially crippling strike. And once that contract is settled, the airline faces another labor test with its flight attendants.
The labor unrest already has created slowdowns and even occasional sabotage that has wrecked the airline's schedule and left many of the its best customers looking to other airlines. During July and August, US Airways was forced to cancel an average of 130 flights a day because of either weather or maintenance problems.
Tiger Management, US Airways' largest single shareholder, with nearly 25 percent of its common stock, has threatened to put the airline into play on Wall Street if management doesn't quickly improve financial performance.
Last week, the airline was forced to announce that it would not report a profit for the third quarter and said it feared the fourth quarter might not be much better. The announcement dropped the stock price to $24.56 1/4, down from its year's high of $64.
Almost everywhere the airline has tried to expand it has suddenly faced new competition, some of it totally unexpected and some where US Airways has found itself unable to respond because of pilot restrictions on the use of smaller regional jets.
The new management team has been unable to cope with the culture of an airline that was forged over time by numerous mergers that never overcame the bitter rivalries of the past.
"They're under attack from everybody, and they haven't fixed a single cost problem in the company," said an industry observer, summing up the problems facing the Arlington-based airline.
And perhaps more important, said the source, who asked not to be identified, "Stephen's tricks have run out. He has no tricks left in his bag."
Wolf made a promising start after his arrival in January 1996. He had a reputation as a first-class airline man and a track record that included the rescue of Tiger and Republic airlines and the restructuring of United Airlines, where he served as chairman for seven years before selling United to its employees.
Shortly after his arrival, Wolf announced a five-point business plan that included making then-USAir "the carrier of choice," not necessity, for its customers, changing the culture of the company, rationalizing the aircraft fleet, exploiting the airline's route dominance in the East and achieving a competitive cost structure.
Even some of the airline's harshest critics acknowledge Wolf's management team has improved service and has put the airline on a flight path toward expansion.
Since 1996, the airline has changed its name from USAir to US Airways in a marketing effort to make it sound like a global carrier, repainted all its aircraft and begun MetroJet, a low-fare airline designed to compete with the likes of Southwest Airlines and Delta Express.
In addition, US Airways has embarked on an ambitious $18 billion aircraft purchase plan with Europe's Airbus Industrie to replace its aging and diverse fleet. The purchase plan is continuing despite the airline's current troubles.
But while the new management has made progress in several key areas, it has yet to fully achieve any of its original goals, particularly that of lowering labor costs.
Wolf has now stepped away from the day-to-day operations, elevating his protege, President Rakesh Gangwal, to chief executive of the parent company, US Airways Group Inc. The showdown with labor will be Gangwal's chance to step from Wolf's shadow after following the chairman from airline to airline.
Gangwal has been faithful to Wolf's philosophy of playing hardball with the unions while treating union membership and leaders with respect.
Gangwal today joins the machinists' negotiations full time in an effort to hammer out an agreement before the Sunday deadline. "There's no doubt that employees want to do right by our company," he said in an interview. "As difficult as these labor issues are, once they are behind us, there is no doubt we will be running a quality airline again, as we did in 1996, 1997 and 1998."
US Airways, like much of the industry, is coming out of a lucrative period. It had more than $1 billion in operating income in 1998, nearly twice as much as in 1997.
Gangwal said the airline's business plan of continued growth and expansion remains unchanged. "We are going to stay focused on it as long as the fundamentals of our business allow us to do it," he said.
US Airways has ambitious plans to expand international service to Europe and the Caribbean while boosting coast-to-coast service in the United States. Officials have noted that the new Airbus fleet will be particularly suited to long-distance expansion. The wide-body A330's -- which will begin arriving next year -- will handle transatlantic duties, while one of the chief selling points of the A320 family is that the narrow-body plane can easily fly coast to coast.
But so far, US Airways is the only major carrier without a marketing alliance with a foreign airline such as United's alliance with Lufthansa or Northwest Airlines' alliance with KLM. The airline currently serves Paris, Frankfurt, Madrid, Rome and Munich. Because of government restrictions in Britain, US Airways cannot fly into London's coveted Heathrow Airport.
The lack of a partner is not an immediate problem, but could quickly become an issue when the airline takes delivery of new larger aircraft with greater capacity -- capacity that could be filled with more connections to Europe. US Airways is in continuing discussions to find a suitable partner by the time it takes delivery next year of the larger aircraft.
Before the airline has to worry about an alliance partner, however, it has to resolve its labor problems.
The machinists' union is poised to strike unless agreement is reached on a new contract. The 7,000 mechanics and related workers overwhelmingly rejected a tentative contract agreement earlier this summer, but negotiations since then have not produced an agreement. The IAM members have not had a pay raise since October 1995, and they are resisting what the union sees as a company effort to convert the jobs of aircraft cleaners into part-time work.
A strike of any length would all but guarantee the airline would have no profit through the balance of the year. Presidential intervention to block a strike is seen as unlikely after the White House allowed a crippling two-week pilots' strike last September at Northwest Airlines.
US Airways is almost in a damned if you do, damned if you don't situation with the machinists. If it takes a strike, it likely will further depress its value on Wall Street and increase already high passenger dissatisfaction. If it meets the union's demands, however, it does little to reduce labor costs that remain among the highest in the industry. Costs at US Airways -- as measured by the amount of money it spends to move one seat through the air for one mile -- are more than 12 cents, while the same costs at Southwest Airlines, a direct low-fare competitor, are about 7 cents.
US Airway has been preaching parity with its union from almost the day Wolf arrived. The single message continues today: Without cost parity with other airlines, US Airways cannot prosper. But that message isn't swaying the union rank and file, who have gone years without a pay raise during one of the most prosperous times in airline industry history.
Labor unrest with the IAM seems to be centered in the Charlotte maintenance base, one of three major bases. Industry sources said efficiency there has taken a dive, with aircraft taking days longer than normal to go through heavy maintenance. Sources said the airline has been forced to fly its schedules as if it has 14 fewer aircraft than it actually does in an effort to make up for the slowdown.
Police records also show that the FBI has been called in to investigate several incidents, including cut wires on jet aircraft. Sources said the sabotage was made so obvious that it is clear someone merely wanted to make a statement rather than cause a plane crash.
In one particularly pointed incident, wires were cut to all 46 loudspeakers in the base shortly after a new sound system was installed.
The union has denied all allegations of sabotage and attributes the maintenance delays to a cutback in maintenance facilities.
Once the IAM situation is resolved, the airline must also reach contract agreement with the Association of Flight Attendants, whose members have gone without a raise for 1,000 days, and with the passenger reservations agents, who were just organized by the Communications Workers of America. Negotiations with the CWA are scheduled to begin Oct. 12.
But even organized labor admits there are only two unions of cost consequence to US Airways, the pilots and the mechanics. The airline reached agreement with its pilots' union in September 1997.
US Airways' new MetroJet subsidiary, allowed as part of the pilots' agreement, was intended as a low-fare answer to Southwest Airlines and, to a lesser extent, to Delta Express. MetroJet is based at Baltimore-Washington International Airport, and its first routes virtually mimicked Southwest's route structure out of Baltimore.
But when MetroJet announced its expansion to Dulles International Airport, it was hit with a surprise. United Airlines and regional partner Atlantic Coast Airlines vastly expanded low-fare flying from Dulles and effectively matched MetroJet's route structure, just as MetroJet had done at BWI.
Dulles is a major international hub for United, and until recently, most domestic flights from there were east-west flights or north-south flights mainly intended to feed the international service. United, in fact, years ago retrenched from many of its East Coast routes. Now, however, United and Atlantic Coast are initiating numerous new East Coast routes, including some taking direct aim at US Airways' routes to Florida.
Then there's an old problem that just won't go away, no matter who's running the airline -- the clashing cultures of the six airlines that were combined over the years to form US Airways. No one has yet succeeded in fully wiping from the minds of employees that they are "Allegheny people" or "Piedmont people," or even that their roots are at Empire, Mohawk, Lake Central or PSA.
A major reason that those cultures continue is that former managements never made a serious effort to centralize the airline and close the myriad headquarters and maintenance bases of the predecessor airlines. The pilot cultures also continue to clash because of inequities in combining seniority lists, leaving some younger pilots ahead of old hands on the seniority roster.
Whatever happens, Wolf and company are going to have to work out their problems by themselves. A changing government antitrust climate has all but ruled out the possibility of a merger with another major airline -- and those that US Airways could possibly acquire aren't worth the effort.
One thing is certain: Wolf won't stick around if he can't grow the airline. If US Airways is forced to return to its roots as a regional airline, Wolf has said publicly, he won't be the man to run it.
CAPTION: Nose Dive (This graphic was not available)